For more, follow our ‘Jim Cramer‘ tag, or read, “Jim Cramer’s Market Manipulation 101“.

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UPDATE: Jim Cramer on John Stewart

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Video via Felix Salmon

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UPDATE: Jim Cramer on John Stewart

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Free stuff, go reading it, folks. Well-written investigation.

UPDATE: James Altucher

Thank you very much for your mind openness. You have a blog post out today (Political futures update) that cites event derivatives (event futures) from both prediction exchanges (betting exchanges), InTrade-TradeSports and BetFair. That’s indeed the way to go —as long as there are volumes.

Congrats, and best wishes for your future career as a political blablater or political event derivative trader —or both. (In that later case, please don’t take Jim Cramer as your role model. )

Finally, a prediction market blogger that reaches my high standard of intellectual honesty. Again, congrats. I’m so happy I could lay an egg.

Have a profitable week trading and blablating (and studying a little bit, on top of that ),

Signed: Chris Masse

P.S.: I would have linked to NewsFutures and FT Predict, too, but I don’t want to appear like I’m asking too much.

Previous: BetFair vs. TradeSports-InTrade by Chris Masse + Leading political indicators by Alex Forshaw

CartoonStock.com

The Least I Owe You
By Jim Cramer
RealMoney.com Columnist
3/22/2007 6:29 AM EDT

You may have seen some articles the past several days attacking me about an interview I gave recently where I discussed the kinds of manipulative trading practices that go on every day in the investing community. Let me say this: No one knows and respects the securities laws more than I do. (I didn’t go to Harvard Law School for nothing!)

When I was a hedge fund trader in the 1990s, I played fair, and I did nothing that violated those laws. But others did not play fair, and that’s why I started TheStreet.com and have been writing about these abuses for nearly a decade — to explain to my readers how the markets really work. I wanted to give transparency to the market and tell people the good and the bad.

Some professional traders don’t like it when I expose how their game is played, and some of the TheStreet.com‘s competitors don’t like it when people are interested in what I have to say. But I am going to continue to write and talk about how the markets really work — in my own sometimes hyperbolic and tongue-in-cheek style — and call them as I see them. That’s the least I owe you.

Jim Cramer’s video, which aired Dec. 22, 2006, on TheStreet.com TV.

Transcript (by Slate):

Verbatim transcript (partial) of Jim Cramer on Wall Street Confidential, Dec. 22, 2006:

You know, a lot of times when I was short at my hedge fund—when I was positioned short, meaning I needed it down—I would create a level of activity beforehand that could drive the futures. It doesn’t take much money. Similarly, if I were long, and I wanted to make things a little bit rosy, I would go in and take a bunch of stocks and make sure that they’re higher. Maybe commit $5 million in capital, and I could affect it. What you’re seeing now is maybe it’s probably a bigger market. Maybe you need $10 million in capital to knock the stuff down.
But it’s a fun game, and it’s a lucrative game. You can move it up and then fade it—that often creates a very negative feel. So let’s say you take a longer term view intraday, and you say, “Listen, I’m going to boost the futures, and the when the real sellers come in—the real market comes in—they’re going to knock it down and that’s going to create a negative view.” That’s a strategy very worth doing when you’re valuing on a day-to-day basis. I would encourage anyone who’s in the hedge fund game to do it. Because it’s legal. And it is a very quick way to make money. And very satisfying.
By the way, no one else in the world would ever admit that. But I don’t care. And I’m not going to say it on TV.

In the next section of the interview, Cramer is discussing what hedge funds that are struggling do to improve their performance before the end of the year.

It’s really vital these next six days because of your payday, you’ve really got to control the market. You can’t let it lift. When you get a Research in Motion, it’s really important to use a lot of your firepower to knock that down, because it’s the fulcrum of the market today. So, let’s say I were short. What I would do is I would hit a lot of guys with RIMM.
Now, you can’t “foment.” That’s a violation. You can’t create yourself an impression that a stock’s down. But you do it anyway, because the SEC doesn’t understand it. That’s the only sense that I would say this is illegal. But a hedge fund that’s not up a lot really has to do a lot now to save itself.
This is different from what I was talking about at the beginning where I was talking about buying the QQQs and stuff. This is actually blatantly illegal. But when you have six days and your company may be in doubt because you’re down, I think it’s really important to foment—if I were one of these guys—foment an impression that Research in Motion isn’t any good. Because Research in Motion is the key today.

Cramer goes on to talk about the actual mechanics of what one would do to knock Research in Motion down. Then he continues:

What I used to do was called— If I wanted it to go higher, I would take and bid, take and bid, take and bid, and if I wanted it to go lower, I’d hit and offer, hit and offer, hit and offer. And I could get a stock like RIM for maybe—that might cost me $15 to $20 million to knock RIM down—but it would be fabulous, because it would beleaguer all the moron longs who are also keying on Research in Motion.
So we’re seeing that. Again, when your company is in survival mode, it’s really important to defeat Research in Motion, and get the [CNBC Bob] Pisanis of the world and people talking about it as if there’s something wrong with RIM. Then you would call the [Wall Street] Journal and you would get the bozo reporter on Research in Motion, and you would feed that Palm’s got a killer that it’s going to give away. These are all the things you must do on a day like today, and if you’re not doing it, maybe you shouldn’t be in the game.

Cramer talks for a while in considerable detail about how, if he were short Apple’s stock today, he would knock Apple’s stock down. Then he says:

What’s important when you’re in that hedge-fund mode is to not do anything remotely truthful. Because the truth is so against your view that it’s important to create a new truth to develop a fiction.

A minute later, when talking about how company fundamentals don’t matter, Cramer says:

The great thing about the market is it has nothing to do with the actual stocks. Now, maybe two weeks from now, the buyers will come to their senses and realize that everything that they heard was a lie, but then again, Fannie Mae lied about their earnings for $6 billion, so there’s just fiction and fiction and fiction.
I think it’s important for people to recognize that the way that the market really works is to have that nexus of: Hit the brokerage houses with a series of orders that can push it down, then leak it to the press, and then get it on CNBC—that’s also very important. And then you have a kind of a vicious cycle down. It’s a pretty good game. It can pay for a percentage or two.

Previous: THOU SHALL NOT MANIPULATE. + Jim Cramer’s Manipulating Futures 101

Manipulation is intentional conduct designed to deceive investors by controlling or artificially affecting the market for a security. Manipulation can involve a number of techniques to affect the supply of, or demand for, a stock. They include: spreading false or misleading information about a company; improperly limiting the number of publicly-available shares; or rigging quotes, prices or trades to create a false or deceptive picture of the demand for a security. Those found guilty of manipulation are subject to criminal and civil penalties.

C.F.T.C.:

Manipulation: Any planned operation, transaction, or practice that causes or maintains an artificial price. Specific types include corners and squeezes as well as unusually large purchases or sales of a commodity or security in a short period of time in order to distort prices, and putting out false information in order to distort prices.

The primary mission of the market surveillance program is to identify situations that could pose a threat of manipulation and to initiate appropriate preventive actions. Each day, for all active futures and option contract markets, the Commission’s market surveillance staff monitors the daily activities of large traders, key price relationships, and relevant supply and demand factors in a continuous review for potential market problems. [...]

Among the core provisions of the Act is a prohibition against price manipulation. Because price manipulation can undermine the hedging and price discovery functions of, and diminish public confidence in, these markets, the Commission, when necessary, focuses its enforcement resources on responding to potentially manipulative activity. [...]

Previous: Jim Cramer’s Manipulating Futures 101

It has re-surfaced on another YouTube URL.

Barry Ritholtz (of The Big Picture) has just blogged about this Cramer scandal, and has re-published the video on its own blog.

Previous: Jim Cramer’s Manipulating Futures 101